Newsboy problem with birandom demand

Abstract

Estimation of accurate product demand in a single period inventory model (SPIM) is an essential prerequisite for successfully managing the supply chain in large and medium merchandise. Managers/ decision makers (DMs) often find it difficult to forecast the exact inventory level of a product due to complex market situations and its volatility caused by several factors like customers uncertain behavior, natural disasters, and uncertain demand information. In order to make fruitful decisions under such a complicated environment, managers seek applicable models that can be implemented in profit maximization problems. Many authors studied SPIM (also known as newsboy problem) considering the demand as a normal random variable with fixed mean and variance. But for more practical situations the mean demand also varies from time to time yielding two-folded randomness in demand distribution. Thus, it becomes more difficult for DMs to apprehend the actual demand having two-folded random/birandom distribution. A blend of birandom theory and newsboy model has been employed to propose birandom newsboy model (BNM) in this research to find out the optimal order quantity as well as maximize the expected profit. The practicality of the projected BNM is illustrated by a numerical example followed by a real case study of SPIM. The results will help DMs to know how much they should order in order to maximize the expected profit and avoid potential loss from excess ordering. Finally, the BNM will enhance the ability of the managers to keep parity of product demand and supply satisfying customers’ needs effectively under uncertain environment.